Empire Company manufactures wheel rims. The controller expects the following ABC
ID: 2518175 • Letter: E
Question
Empire Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018 :
Predetermined Overhead
Activity
Allocation Base
Allocation Rate
Materials handling
Number of parts
$7.00
per part
Machine setup
Number of setups
700.00
per setup
Insertion of parts
Number of parts
23.00
per part
Finishing
Number of finishing hours
60.00
per hour
Empire produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:
Standard
Deluxe
Parts per rim
2.0
4.0
Setups per 500 rims
15.0
15.0
Finishing hours per rim
2.0
4.5
Total direct labor hours per rim
4.0
5.0
The company expects to produce 500 units of each model during the year.
Carry each cost to the nearest cent.
1. Compute the total estimated indirect manufacturing cost for 20182018. 2. Prior to 20182018?, EmpireEmpire used a single plantwide overhead allocation rate system with direct labor hours as the allocation base. Compute the predetermined overhead allocation rate based on direct labor hours for 20182018. Use this rate to determine the estimated indirect manufacturing cost per wheel rim for each?model, to the nearest cent. 3. Compute the estimated ABC indirect manufacturing cost per unit of each model for 20182018.Carry each cost to the nearest cent.
Compute the total estimated indirect manufacturing cost for 20182018. Begin by selecting the formula to compute the total estimated overhead? (OH) costs.Explanation / Answer
Working Note: Standard Deluxe Total Number of parts 1000 2000 3000 Number of set ups 15 15 30 Finishing hours 1000 2250 3250 Direct labour hour 2000 2500 4500 1. The total estimated indirect manufacturing cost for 2018 Begin by selecting the formula to compute the total estimated overhead costs Total estimated quantity of the allocation base x Predetermined overhead allocation rate = Total estimated overhead costs Activity Total estimated indirect manufacturing cost Material handling $21,000 Machine set up $21,000 Insertion of parts $69,000 Finishing $195,000 Total $306,000 2. Predetermined overhead allocation rate based on direct labour hours Total indirect manufacturing cost = $386750 Total direct labour hour = 4500 Overhead allocation rate = $386750/4500 hours = $85.95 per hour The estimated indirect manufacturing cost per wheel rim for each model Standard Deluxe Direct labour hour per rim 4 5 Overhead allocation rate $85.95 per hour Estimated indirect manufacturing cost per rim $343.80 $429.75 3. The estimated ABC Indirect manufacturing cost per unit of each model for 2018 Activity Standard Deluxe Material handling 14 28 Machine set up 21 21 Insertion of parts 46 92 Finishing 120 270 Total 201 411
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